May 29 (Bloomberg) -- Asian currencies had their biggest
weekly gain in almost two months as reports showed regional
economies are improving and concern faded that Europe’s debt
crisis will worsen.

The South Korean won and the Philippine peso were the
biggest gainers yesterday after China affirmed its commitment to
investing in Europe. The Philippine economy grew at the fastest
pace in three years in the first quarter and South Korean
manufacturers’ confidence held near a seven-year high.

“Markets are thinking they may have overpriced risks
related to Europe,” said Sebastien Barbe, head of emerging-market research for Credit Agricole CIB in Hong Kong. The idea
that the European crisis could derail the global recovery eased
and “if this is the case, then there’s no reason to sell stocks
and currencies in Asia.”

The peso gained 0.6 percent in the past week to 46.192 per
dollar in Manila, according to Tullett Prebon Plc. The Taiwan
dollar climbed 0.2 percent to NT$31.175, according to Taipei
Forex Inc. The won rose 2.4 percent to 1,194.80 yesterday,
leaving it little changed for the week, based on Seoul Money
Brokerages Services prices. Markets in Indonesia, Malaysia,
Singapore and Thailand were shut for a holiday yesterday.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the
region’s 10 most-traded currencies excluding the yen, rose 0.5
percent in the week, its most since the five days ended April 9.
The MSCI Asia Pacific Index of shares rose for a third day after
China’s State Administration for Foreign Exchange denied as
“groundless” a report that it’s reviewing foreign-exchange
holdings of euro assets.

Euro Holdings

Volatility in the euro shouldn’t have a “significant
impact” on China’s strategy of diversifying its foreign-currency reserves, Yu Yongding, a former adviser to the central
bank, said in a telephone interview yesterday. “We believe the
euro-zone can get over the crisis and maintain the euro’s
stability.”

The won rebounded, after slumping to a 10-month low earlier
this week amid mounting tension with North Korea over the
sinking of one of the South’s warships.

The government will take action to combat “herd behavior”
in the currency market, Deputy Finance Minister Kang Ho-In said
yesterday. Kang added North Korean tensions will have a limited
impact on South Korea’s economy if no additional outbreaks occur
and that the country’s credit rating won’t be affected.

Growth Signs

A South Korean index measuring manufacturers’ expectations
for June fell to 104 from 107 in May, the Bank of Korea said
yesterday. The May reading was the highest since the fourth
quarter of 2002. An index measuring the outlook for exports
climbed to 118 from 116 a month ago.

Growth in Asian economies outpaced the rest of world in the
first quarter, prompting central banks in the region to begin
raising interest rates as inflation returns.

Philippine economic growth of 7.3 percent, reported May 27,
beat the 4.4 percent median estimate of economists in a
Bloomberg survey. The government may raise its 2010 growth
forecast from the current 2.6 percent-to-3.6 percent range,
Economic Planning Secretary Augusto Santos said.

The growth rate “reinforces the positive sentiment on the
peso,” said Jojo Salvan, assistant vice president for treasury
at Bank of the Philippine Islands in Manila. Investors are
“optimistic in terms of growth. Flows are coming into the
country continuously.”

Rate Outlook

The Indian rupee climbed 1.2 percent in the week to 46.3550
per dollar. India’s economic growth accelerated to 8.6 percent,
according to the median estimate of economists before a May 31
report. That would be the fastest pace since the fourth quarter
of 2007.

“India is perceived as less risky given the robust growth
outlook and that may spur foreign fund inflows,” said Sanjay
Arya, treasurer at state-owned Bank of Maharashtra in Mumbai.
“Global cues are also turning positive for the rupee.”

Central banks in the Philippines and Indonesia will hold
policy meetings in the coming week. Rate hikes “will happen
earlier in Asia than in the U.S. or Europe,” Credit Agricole’s
Barbe said.

Elsewhere, the Indonesian rupiah strengthened 0.7 percent
in the week to 9,215 per dollar, the Malaysian ringgit climbed
0.9 percent to 3.2865 and the Thai baht fell 0.3 percent to
32.54.